Stock price when the opinion was issued
An aerospace and defence aspect to it. There is interest due to geopolitics (eg. Ukraine, Israel, Taiwan). The safety of the aerospace aspect of this business is a good thing to have. Good growth in this area. New plane adoption is ramping up, due to fuel efficiency making money for airlines. Had a stumble a number of years ago due to discovery of contaminants in their production. They recovered from it. Knows that markets tend to forgive mis-steps if there is a constructive solution.
(Analysts’ price target is $132.95)Servicing the aerospace OEM side is very profitable, with long-term recurring revenues. This makes the earnings profile less cyclical. Defense side seeing very strong demand from US and internationally. Very strong backlog in defense. Will benefit from global increases in defense spending. In the face of geopolitical turbulence, defense business should stay pretty sound. Yield is 1.96%.
(Analysts’ price target is $139.88)
He prefers Northrup to Raytheon because Northrup’s entire backlog is in classified projects, which is where there is the most growth (Cyber, hypersonics, and space). Raytheon is number 2 and is well-exposed to those spaces. Northrup’s products are younger, which means their margins on them will grow for a longer period. Defense is the best idea he has in general. The defense cycle is 7-10 years long, it is recession-proof, and it this cycle started only a few years ago.